Marie Fossum Strannegård, VP Energy Ericsson: “Future of smart metering depends on regulatory framework”
October 25, 2016
Ericsson may be in crisis – its CEO was forced out in July and it has announced a series of cuts – but energy looks set to be part of its future.
About three years ago, the telecommunications company made the decision to expand into three new industries: energy (utilities), transport and public safety. Since then the board forced out CEO Hans Vestberg (he was replaced at the end of October) after he reported low revenues and profits, and amid a series of investigations. At the end of September, Swedish media reported that Ericsson planned to close the last of its Swedish manufacturing sites as part of the planned savings.
But the reorganisation will not affect Ericsson’s relatively new energy activities, says Marie Fossum Strannegård, who was recruited from Finnish energy company Fortum about one-and-a-half years ago to lead the Swedish company’s energy activities (her brief has recently been expanded to include all new business). At Fortum, Fossum Strannegård was VP for business development and R&D for nearly six years before heading the company’s solar business for her last months there.
Ericsson’s focus in the energy sector is on smart meter management services for utilities. With her combined experience in energy and telecoms, Fossum Strannegård has an interesting take on the predicament European utilities currently face. “Telecoms companies were much worse off,” she says, talking of their rapid liberalisation in the 1990s and confrontation with real-time data in the early 2000s.
“Utilities will have to have billing systems that can handle those big data volumes. It’s very similar to what happened in the telecoms industry in the early 2000s”
In her opinion, utilities have it easier because they still have their regulated tariffs guaranteeing some income, and competition is hardly what it was in the telecoms sector at the time, with switching rates of up to 20% per year. She believes utilities will still be around for a while yet.
For her, the business case for smart meter services depends very much on the regulatory framework of a country. In future, she believes Distribution System Operators (DSOs) will still own the meters in most countries, but they will have to send meter data to a national data hub, where they can be accessed by all players.
Fossum Strannegård is taking part in a panel debate on 23 November in Barcelona hosted by Energy Post, at the KIC InnoEnergy annual Business Booster event, which is a meeting place for startup entrepreneurs in sustainable energy. The debate will revolve around changing business models in the energy sector. Energy Post’s EU correspondent Sonja van Renssen spoke with Fossum Strannegård about how she sees the business model for energy companies evolve in Europe.
Q: How does energy fit into Ericsson’s business model?
A: Telecoms is still our core business. But the Board made the decision three years ago, before I joined, to start to heavily invest into three new industries: utilities, transport and public safety – basically government. They started to recruit from the outside and I was brought in from Fortum about 18 months ago. Since then we have been focusing on building a portfolio [of products and services] for utilities.
“A bigger change for utilities is going from not such a big focus on retail to having to be quicker in understanding and putting retail questions higher up on the management level”
The part of the value chain we have been focusing on has been distribution and retail. In distribution we have focused on communication and smart metering assignments. In retail, we have focused a lot on revenue management. We have focused on digitalisation in general. We find lots of similarities between mobile or fixed-line telecoms operators and the distribution and retail side of the energy market.
Q: What kinds of similarities do you see between telecoms and energy?
A: The telecoms industry was deregulated in the beginning of the 1990s and went through a very similar period as many utilities are going through right now. New competition entered their industry. They had to start to focus in a different way on protecting their customers and creating loyal customer bases. They had to think of the market, and launch new products and services. Provide better services for customers. They had to be equipped to handle a competitive landscape they hadn’t been equipped for in the past, when they were a monopoly.
There is also a similar kind of value chain. In telecoms, you have a fixed-line network and in the power grid you also have a grid that goes from one point to another. You can have lot of network losses in each system.
There will be more and more real-time data that will have to go through the power grid. The same thing happened in telecoms, after requirements from governments that you have to be able to see on a real-time or daily basis how much you consume. All of a sudden you are going from a fairly slow IT world into an IT world where you have to handle lots of data in real-time. That’s what happening now with the smart meters being installed. Utilities will have to have billing systems that can handle those big data volumes. It’s very similar to what happened in the telecoms industry in the early 2000s.
And then telecoms players also experienced the financially difficult situation of utilities today. They had to make lots of investments at the same time as they were pushed on prices because of the new competitive landscape. It’s exactly what’s happening right now for many utilities. So there are lots of similarities not only on the technical part but also on the business and earning logic part.
Q: What lessons could utilities take from the transformation of their telecoms counterparts?
A: Some telecoms companies decided to do it all at once and got really stressed. Utilities can probably act in a bit of a calmer way. They are still very heavily regulated. They don’t have to do everything right now. The pace of change in utilities will not be as fast as it was in telecoms.
The lesson is to invest in tools and systems that have strong references. The telecoms industry didn’t have that luxury – they were almost the first to have to handle those massive volumes of data. They could look to the finance industry but not many others. Utilities can re-use lots of tools and probably also systems from the telecoms industry.
Q: The energy transition has hit many utilities hard – are they really not that badly off?
A: Telecoms companies were much worse off. Many utilities have at least a base of distribution assets, which are regulated. They have their fixed tariffs coming into their revenue base. The telecoms industry didn’t have that. And competition was extremely harsh.
At the time, the telecoms industry also earned lots of money from the retail side – and it was exactly that part that was heavily impacted by the change. Utilities have historically made lots of money from large-scale generation. Retail hasn’t been the biggest part of the value chain. Only now the importance is shifting to retail. So a bigger change for utilities is going from not such a big focus on retail to having to be quicker in understanding and putting retail questions higher up on the management level.
“As utilities haven’t really changed for a long time, they may have to find some new blood or new partners to really transform the industry into something else than what it is today”
That is a big change. But at the same time you can’t see the same churn [i.e. switching] levels as you did in telecoms in retail. In telecoms, we had up to 20% churn. You don’t find that in utilities in many parts of Europe because you still have fixed tariffs. You don’t have a deregulated situation. Of course they have a massive push because they are losing lots of money in large-scale generation but that’s it. Now they have to try to earn it back somewhere else and are looking to retail.
Q: How are utilities reacting to all these energy system changes? Do they come to you or do you approach them with your services?
A: We approach them. I would definitely say that they have realised this is extremely important. They want to change. But it’s also a matter of having people who are experienced enough to drive this change. As utilities haven’t really changed for a long time, they may have to find some new blood or new partners to really transform the industry into something else than what it is today.
Q: Will utilities still play a big role in the energy system of the future?
A: Yes, I still believe that utilities have a very strong role to play and over a longer period of time. We will go more towards a decentralised system and solutions in many parts of the world, but we still need a strong central system. I don’t think it’s very likely that a large part of the population will go off-grid in the next 20 years, for example. So the existing parts of the value chain are important. Obviously there will be new players interested in taking some of the potential revenues. There will be more players.
Q: How you fit into that new energy marketplace? You offer smart meter services.
A: That’s the beginning for us. That’s where we are right now. I can’t tell you exactly where we will land in future. Right now we are working with our customers – the utilities – to make them as efficient as possible. So they can cope with the competition out there. In addition to smart meter services, we also offer smart grid communication. And on the retail side, customer revenue management is an important revenue area for us.
Q: What drives your business case? Since consumers are notoriously uninterested in how much energy they consume…
A: True. In Sweden we have hourly meter values and have had so for a longer period of time but many people have no clue how many kilowatt hours they consume. Regulatory changes are driving us more than other things. Deregulation is the first step. The second is giving consumers access to meter values so we can start to offer new services and products based on how much they consume. So far the number of countries that have fully deregulated is not that many. Even Denmark still has fixed tariffs on the retail side.
Q: Distribution is one of your focus areas. How do you see the role of Distribution System Operators (DSOs) in future?
A: As it is today: to run and operate the grid in a cost-efficient way. When it comes to their role in data management and access, it depends on the regulatory model.
In Sweden, DSOs own smart meters by law so they store, own and control the data. But the regulator describes what they can and cannot do with it. For example, they probably cannot give it to a third party without a customer’s consent. Then there are other regulatory frameworks like in the UK or Australia, where the meter is part of the free market. DSOs can own them, but so can other companies.
“I think it’s important that data is made available to the free market one way or another”
Most countries today use the DSO-ownership model, but some – like Norway, Denmark and Estonia – have developed or are about to develop a national data hub. This means that all DSOs have to send their meter values to a central point controlled by a governmental authority, who distributes the data further to third party players. That’s a model I think will grow. I know the Netherlands is looking at it right now for example.
I think it’s important that data is made available to the free market one way or another. You have to control it so customers can approve or not approve whether their data is available. But I think that if the customer wants it, DSOs have to give access to the data to other companies who can offer new products and services on the back of it. That’s important for innovation.
Q: Why do you expect national data hubs to become more prevalent? Are they better for privacy?
A: Probably. They can also even things out. In Sweden, there are 150 distribution companies. If they all send their data to one national hub however, a retail company will have just one interface to deal with. It reduces complexity. And hopefully the data quality will be better as well.
Q: How far up the energy value chain are you looking to go? Why not serve end-consumers directly rather than utilities?
A: That’s not our current strategy. You have to decide where to play and we have decided that right now our customers are the utilities.
Q: Are you looking to work together with other companies besides utilities, e.g. car companies or other software providers?
A: We already work with car companies but not in the energy space. We work on connected cars, e-mobility and so forth so there’s a link to utilities but no competition. They will be working more and more together however, and we can act as a facilitator between those industries plus telecoms, which is very important with connectivity and communications growing and becoming more strategic also for utilities.
Q: What do you see as your biggest challenge going forward?
A: We have been focusing on utilities for some time but I think most people around the world still think of Ericsson as a telecoms company because that’s what we were for 140 years. Now we are expanding, investing in new industries – energy is one – and we need to grow our brand. Telecoms has been our bread and butter. Now we want to move on.
© Sonja van Renssen, Energy Post